55. Issue and redemption of preference shares
(1) No company limited by shares shall, after the commencement of this Act, issue
any preference shares which are irredeemable.
(2) A company limited by shares may, if so authorised by its articles, issue preference
shares which are liable to be redeemed within a period not exceeding twenty years from the
date of their issue subject to such conditions as may be prescribed:
Provided that a company may issue preference shares for a period exceeding twenty
years for infrastructure projects, subject to the redemption of such percentage of shares as
may be prescribed on an annual basis at the option of such preferential shareholders:
Provided further that—
(a) no such shares shall be redeemed except out of the profits of the company
which would otherwise be available for dividend or out of the proceeds of a fresh issue
of shares made for the purposes of such redemption;
(b) no such shares shall be redeemed unless they are fully paid;
(c) where such shares are proposed to be redeemed out of the profits of the
company, there shall, out of such profits, be transferred, a sum equal to the nominal
amount of the shares to be redeemed, to a reserve, to be called the Capital Redemption
Reserve Account, and the provisions of this Act relating to reduction of share capital
of a company shall, except as provided in this section, apply as if the Capital Redemption
Reserve Account were paid-up share capital of the company; and
(d) (i) in case of such class of companies, as may be prescribed and whose
financial statement comply with the accounting standards prescribed for such class of
companies under section 133, the premium, if any, payable on redemption shall be
provided for out of the profits of the company, before the shares are redeemed:
Provided also that premium, if any, payable on redemption of any preference
shares issued on or before the commencement of this Act by any such company shall
be provided for out of the profits of the company or out of the company’s securities
premium account, before such shares are redeemed.
(ii) in a case not falling under sub-clause (i) above, the premium, if any, payable
on redemption shall be provided for out of the profits of the company or out of the
company’s securities premium account, before such shares are redeemed.
(3) Where a company is not in a position to redeem any preference shares or to pay
dividend, if any, on such shares in accordance with the terms of issue (such shares hereinafter
referred to as unredeemed preference shares), it may, with the consent of the holders of
three-fourths in value of such preference shares and with the approval of the Tribunal on a
petition made by it in this behalf, issue further redeemable preference shares equal to the
amount due, including the dividend thereon, in respect of the unredeemed preference shares,
and on the issue of such further redeemable preference shares, the unredeemed preference
shares shall be deemed to have been redeemed:
Provided that the Tribunal shall, while giving approval under this sub-section, order
the redemption forthwith of preference shares held by such persons who have not consented
to the issue of further redeemable preference shares.
Explanation.—For the removal of doubts, it is hereby declared that the issue of further
redeemable preference shares or the redemption of preference shares under this section shall
not be deemed to be an increase or, as the case may be, a reduction, in the share capital of the
company.
(4) The capital redemption reserve account may, notwithstanding anything in this
section, be applied by the company, in paying up unissued shares of the company to be
issued to members of the company as fully paid bonus shares.
Explanation.—For the purposes of sub-section (2), the term ‘‘infrastructure projects’’
means the infrastructure projects specified in Schedule VI.